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Abu Dhabi is witnessing frenetic infrastructure growth which is also attracting a big influx of expatriates. With its population set to rise rapidly, how will the real estate market of the capital city of the UAE fare? Ben Crompton, managing partner at Crompton Partners Estate Agents, gives his insight on the current trends and what lies ahead.
Supply versus demand
Abu Dhabi’s new property pipeline is lagging behind population expansion. A lot of new projects are planned such as Mamsha Al Saadiyat, the first residential cluster in the Saadiyat Cultural District built by Abu Dhabi’s Tourism Development and Investment Company (TDIC). Aldar has also launched Ansam located on Yas Island and Al Hadeel at Al Bandar on the Al Raha Beach waterfront. But these projects will not come online until at least late 2016.
Abu Dhabi started its building phase late and we predict that undersupply will continue for at least two more years. Abu Dhabi is relatively insulated from oil price fluctuations as the emirate has large oil reserves and a long-term strategic plan that it has budgeted for. Sliding oil prices are likely to only affect exploration in the capital while the other industries are unlikely to be influenced. Abu Dhabi, in fact, can benefit from capital fleeing economic slowdown in the rest of the region.
A lot of people who bought off-plan properties in 2007-2008 had a bad experience with their property prices touching new lows. But many of these properties are now starting to reach their break-even point and the homeowners are contemplating selling them. The last six months have seen more products coming into the market as prices and demand witness an uptick.
Villas and apartments
Villas are popular in Abu Dhabi but are in short supply. The end of the last decade saw a lot of villa compounds springing up, but little has been released in the last few years. This is in stark contrast to apartments which are coming up regularly. We expect villa prices to rise more steeply than those of apartments over the next few years due to a shortage of supply.
There is a significant shortage of smaller apartments in Abu Dhabi. Part of this is because, traditionally, the capital city has been popular among families to settle down. So there was more demand for three to four-bedroom apartments to be built. Even today, most of the construction is happening in prime areas like Al Reem, Al Raha and the city which are the favoured destinations of families who are willing to pay higher rents. Cheaper accommodation and smaller units tend to be found off-island and built in a sporadic fashion rather than in a planned community by master developers.
Abu Dhabi is currently a very good investment opportunity. The stability of the emirate and increasing rental prices make investing here very attractive. Yields in areas like Al Reef and Al Ghadeer can be over 8 per cent for smaller units. Investing in studio and one-bedroom apartments offers the best returns.
Al Ghadeer is the newest and most exciting residential cluster. It is situated on the Abu Dhabi-Dubai border and has great access to the Expo 2020 site, Al Maktoum International Airport and Jebel Ali Free Zone. The construction quality is excellent and it offers studio, one and two-bedroom apartments as well as two and three-bedroom villas.
In Dubai, there a couple of developers in areas like IMPZ and Dubai Sports City which are targeting Homeowners with a monthly salary of Dh15,000-Dh20,000 to buy a house with attractive payment options rather than rent. However, we have seen a relative inflexibility with developers in Abu Dhabi in terms of attracting different types of investors mainly due to the gulf in track records between the bigger and smaller developers. The larger developers do not need to offer incentives on their projects as they are well-known names with excellent build records. Other smaller developers lack the credentials after the letdowns of 2008. These developers are the ones who need to incentivise wary investors, but are currently unable or unwilling to offer anything more tempting to buyers.
Future road map
• There should be a land registry to record property in Abu Dhabi. Currently, the records are kept by developers which give them too much power over the sale process. Residential towers and communities should be able to form owners associations where they can hire their own security and maintenance and charge their own members service charges. The current system where developers make money on service charges is unfair. A regulatory authority with real teeth to weed out unscrupulous real estate agents and make the process safer and more secure for tenants and purchasers must be set up
Source: S. Dhar, Special to Freehold